Correlation Between Western Assets and Jensen Portfolio

Can any of the company-specific risk be diversified away by investing in both Western Assets and Jensen Portfolio at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Western Assets and Jensen Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Western Assets Emerging and The Jensen Portfolio, you can compare the effects of market volatilities on Western Assets and Jensen Portfolio and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Western Assets with a short position of Jensen Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of Western Assets and Jensen Portfolio.

Diversification Opportunities for Western Assets and Jensen Portfolio

0.37

Correlation Coefficient

Western Assets  Jensen Portfolio

Weak diversification

The 3 months correlation between Western and Jensen is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Western Assets Emerging and The Jensen Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Jensen Portfolio and Western Assets is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Western Assets Emerging are associated (or correlated) with Jensen Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Jensen Portfolio has no effect on the direction of Western Assets i.e., Western Assets and Jensen Portfolio go up and down completely randomly.

Pair Corralation between Western Assets and Jensen Portfolio

Assuming the 90 days horizon Western Assets Emerging is expected to generate 0.5 times more return on investment than Jensen Portfolio. However, Western Assets Emerging is 2.02 times less risky than Jensen Portfolio. It trades about -0.09 of its potential returns per unit of risk. The Jensen Portfolio is currently generating about -0.06 per unit of risk. If you would invest  1,082  in Western Assets Emerging on October 9, 2024 and sell it today you would lose (20.00) from holding Western Assets Emerging or give up 1.85% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Western Assets Emerging  vs.  The Jensen Portfolio

Western Assets Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Western Assets Emerging has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Western Assets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Jensen Portfolio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Jensen Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Jensen Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Western Assets and Jensen Portfolio

The main advantage of trading using opposite Western Assets and Jensen Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Western Assets position performs unexpectedly, Jensen Portfolio can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Jensen Portfolio will offset losses from the drop in Jensen Portfolio's long position.

The idea behind Western Assets Emerging and The Jensen Portfolio pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.